Do pension plan owners need guidance at retirement? I think they might well do. But what they probably don’t need is the complex and expensive guidance service being proposed by the Government.
Do they need independent, impartial advice to help them make the right decisions? I absolutely know that they do. Can they afford it? Maybe, maybe not.
But will the proposed guidance service really result in them seeking financial advice? I am totally unconvinced that they will.
The FCA Thematic review of annuities (TR14/2 – do you remember that being published just before George Osborne pulled the rug out from under the regulator’s feet?) told us 80 per cent of those who purchased an annuity from the provider of their current pension plan would have been better off shopping around.
Let’s be clear here – better off means having more income for the rest of their lives than they would have got from the provider of their pension plan.
The guidance that they really need is much simpler, and a whole lot cheaper, than the expensive debacle being forced on us by Mr Osborne.
What is needed is a warning, big, bold and in your face, a bit like on cigarette packets. This warning should be issued by pension plan providers at the point where they alert plan owners about their upcoming retirement date.
‘WARNING: not shopping around for retirement benefits can SERIOUSLY DAMAGE YOUR WEALTH!’
There is already oodles of guidance available to the consumer. It’s called the internet. And for any one who can’t access the internet there is plenty of written material available. However, better than either the internet or paper is to have a quick chat to an authorised and regulated independent financial adviser.
Despite all the suggestions to the contrary, the typical consumer does not see any difference between guidance and advice. And we know that George Osborne disingenuously exploited this fact when he announced “free face to face advice” and then squirmed out of it by claiming he really meant guidance but needed to communicate with a broad group of people.
I liked the analysis from unbiased.co.uk back in May they told us: “29 per cent of consumers want a guarantee that what they are being told is right for them.”
It sounds like they want advice to me and that is what the consumer will expect when they make their call to MAS or TPAS or any of the other independent organisations who are going to support the guidance guarantee and share in the tax – sorry levy – being imposed on intermediaries
Will this result in more clients for the IFA? Highly unlikely, they just thought they had free advice regardless of what was actually said to them.
Those with substantial pension pots already seek professional advice or are confident enough to make their own decisions. Those with modest pots may well seek advice, while some are inevitably put off by the sort of costs involved in receiving that advice. But (and its a big but) the vast majority of pension plan owners are going to have very modest if not small amounts of money.
In their State of Retirement Report 2014, LV= pointed out that some 85 per cent of those buying annuities in 2012 had up to £50,000 in their pension pots. Now my working class roots tell me that £50,000 is, and always has been, a lot of money but sadly probably not enough to motivate most people to seek out independent advice.
So here’s my conclusion:
- George, you can prattle on as much as you like about whether advice and guidance are the same or different but the consumer absolutely believes they are the same thing;
- the cost of this guidance guarantee service is going to be well above £50m, particularly when the likes of MAS get their claws into it;
- IFAs will pay for this because we are a soft target and it will not result in any commercial benefit to us;
Finally, if you don’t have a financial stake in this particular game (i.e. you are not a levy payer) forgive me but I really am not interested in your opinion about whether this will generate client enquiries or not, I will spend my own marketing budget thank you very much.
Nick Bamford is executive director at Informed Choice